Student Loan Forgiveness Plan Spotlights a Broader System in Need of Reform
The White House’s recent announcement about student loan cancellation has elicited strong opinions, both in favor of cancellation and opposed to it. First, here’s what the executive action does: it reduces student loan amounts by $20,000 for students who received a Pell grant (indicating low-income status while in school) and $10,000 otherwise. Borrowers who make more than $125,000 are ineligible, which means 90 percent of the relief will go to borrowers making less than $75,000 per year. For the balances that remain, it cuts the monthly payments in half, from ten percent of current income to five percent.
Arguments against this policy are understandable - is it fair to forgive loans for some students while other people paid out of pocket for college, paid off their loans, or didn’t go to college at all? But it is also worth asking, is it fair that some people can get a college education without incurring debt, while others spend decades paying substantially more in interest and principal for the exact same education?
At Student-Ready Strategies, we consistently encourage colleges and universities to look beyond how students’ individual actions contribute to outcomes, and examine the systems in which students operate. For the student loan discussion, we encourage people to do the same. Our approach is shaped by the thinking of W. Edwards Deming, who said that every system is perfectly designed to get the results it does.
The federal student loan program, therefore, is perfectly designed to make the cost of a degree or credential higher for those with limited financial means, saddling them with compounding debt that limits their ability to build wealth after they graduate. It is also perfectly designed to exacerbate inequities based on race and socio-economic status. The average Black college graduate owes over $52,000 while the average white college graduate owes only $28,000. And this system is perfectly designed to keep people in debt for much longer than expected. One jaw-dropping statistic is the percentage of loans for which the current balance exceeds the original amount borrowed - 51% for white borrowers, 60% for Latinx borrowers, and 75% for Black borrowers.
These statistics represent system failure. It is not the case that a few people made bad decisions or didn’t follow the rules. It is the case that the government, likely with the best of intentions, set up a flawed system as it attempted to expand college access to families with fewer financial resources. The entire premise that we should fund something that is arguably a public good with private debt should be reconsidered, along with the specific design of the program built on that premise. It is the system that is to blame for the harm it has inflicted, not the fault of the students the harm was inflicted upon. We hope this loan cancellation decision is about much more than financial relief. We hope it is a subtle, but important, government acknowledgement that the student loan system in its current form was ill-advised from the beginning and must be redesigned - or dismantled - to achieve more equitable results.
So, where do we go from here? It is not enough to retroactively right these wrongs. One criticism of the current loan cancellation policy is that it does nothing to address overall costs, or prevent perpetuation of the same problems for future generations. We agree. The underlying issue is that the cost of college continues to balloon and outpaces overall inflation - by a lot. So, what can be done to tackle college affordability? Three key things:
If you are a college instructor, use open educational resources that are free to students instead of traditional high-cost textbooks and learning materials. This not only saves money, but ensures all students have access to the materials and can have them in hand before class even starts. Textbook and other course material costs are a major component of affordability, and one that is best tackled by the faculty who choose them.
If you are a college leader, put structures in place to shorten the time it takes students to graduate. An additional year in college costs an estimated $150,000 in direct and opportunity costs. Create clear degree pathways to take the guesswork out of course selection, ensure advisors talk with students about pace to degree and the costs of delayed graduation, and use innovative schedules designed for students with jobs, families, and other obligations.
If you are a state or federal policymaker, make a true investment in the education levels our economy needs. Invest in higher education as a public good, and ensure it is publicly funded at levels that allow all students to get at least two years of college tuition-free. If borrowing remains a component of college finance, eliminate interest so students have a reasonable opportunity to quickly pay the debt off.
The national dialogue around student loan cancellation will inevitably continue as relief hits households and political campaigns kick into high gear. We encourage you, as you listen and contribute to these discussions, to keep the focus of the system, not the students, and push for a long-term affordability strategy that truly provides equitable access and outcomes in higher education.